NAR asks Congress to raise conforming loan limit … or else!

The National Association of Realtors would really like the housing boom to continue.

Sure, that’s in their own self-interest.

But, they have bigger fears now, I think.

They fear (don’t we all) that the US is in or is going into a recession.

They have a couple of ideas on how to get us out of this impending doom.

One is by changing the limits of “conforming loans”.

A conforming loan is one that companies such as Fannie Mae & Freddie Mac guarantee, so if you default it will make the lender whole – making it easier for lenders to resell on the secondary market. If your lender can resell your loan, then it can make another loan, etc., etc., etc. Selling the loans frees up cash, which stimulates the economy, etc., etc., etc.

Trouble is, the conforming loan limit is $417,000 right now. If you borrow above this, you’ll pay a premium – your loan is what’s known as a “jumbo loan”. Partially because it’s bigger than the limit, partially because it can’t be guaranteed by the government-sponsored organizations, you pay a higher interest rate.

So, NAR thinks well, if we up that loan limit, then interest rates will be lower on some loans, more people will be able to qualify for bigger loans, people will start to buy more homes, the economy will be stimulated, etc., etc., etc.

Raising the conforming loan limit to $625,000 would reduce the supply of homes on the market by one to one-and-a-half months, NAR said in a statement, strengthen home prices by 2 to 3 percentage points, and increase economic activity by $42 billion. NAR claimed that increasing conforming loan limits could help reduce foreclosures by 140,000 to 210,000 and result in an additional 348,000 home sales.

“We believe that any stimulus package must address housing issues and increasing the conforming loan limits for these two government-sponsored enterprises,” NAR President Dick Gaylord said in a statement. “The increase in loan limits would not only improve liquidity in the mortgage marketplace, but also boost home buyers’ confidence levels, resulting in increased sales and economic activity.”

You might think the last thing we all need is for more Americans to borrow even more money.